A major difference between an FHA loan and a conventional loan is the amount of down payment required. Although conventional loans require a higher down payment, they often have more flexible standards, which can make them more affordable. Moreover, the standards for an FHA loan are less strict, and you can qualify for them even with less-than-perfect credit.
Another key difference between an FHA loan and a conventional loan is debt-to-income (DTI). An FHA loan allows borrowers to borrow up to 50% of their gross income. A conventional loan will allow borrowers to borrow up to only 43% of their income. If you have a DTI of more than 45%, you should shop around for a lender who is more flexible.
While an FHA loan requires a 20% down payment, a conventional loan allows you to finance a higher percentage of your home’s value without PMI. However, you will be required to pay private mortgage insurance, which is arranged by your mortgage lender. You can choose to pay premiums every month or pay them in full upfront. It is recommended to ask your loan officer about the costs associated with both types of mortgage insurance and compare them side-by-side.
FHA loans are a great option for first-time home buyers. They do not require much down payment and are often the best option for people with less than perfect credit. As long as you have enough income to cover the down payment, an FHA loan is an excellent option.
